Ted is a 30% partner in the TDW Partnership with an outside basis of $20,000. TDW distributes $15,000 of cash in complete liquidation of Ted's interest. Ted recognizes a capital loss of $5,000 on the distribution.

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Ted's outside basis is $20,000, and he receives $15,000 in cash. The difference of $5,000 is a capital loss, as the cash received is less than his basis in the partnership.

Ted Is a 30% Partner in the TDW Partnership with an Outside